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Chapter 10. Understanding the Basics of ... > Recent Key Trends in U.S. Franchisin...

Recent Key Trends in U.S. Franchising

An Overview of Federal and State Franchise Regulation of U.S. Franchises

Current and prospective franchisors need to have a full understanding of the complex regulatory framework that governs the definition, offer, and sale of franchises and business opportunities in the United States. The offer and sale of a franchise in the United States is regulated at both the federal and state levels. At the federal level, the Federal Trade Commission (FTC) in 1979 adopted its trade regulation rule 436 (the “FTC Rule”) that specifies the minimum amount of disclosure that must be made to a prospective franchisee in the United States. In addition to the FTC Rule, over a dozen states have adopted their own rules and regulations for the offer and sale of franchises within their borders. Known as the registration states, they include most of the nation’s largest commercial marketplaces, such as California, New York, and Illinois. These states generally follow a more detailed disclosure format, known as the Uniform Franchise Offering Circular (the UFOC).

The UFOC was originally developed by the Midwest Securities Commissioners Association in 1975. The monitoring of and revisions to the UFOC are now under the authority of the North American Securities Administrators Association (NASAA). Each of the registration states has developed and adopted its own statutory version of the UFOC. Both current and prospective franchisors and their counsel should check the differences among the states carefully.


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